Problem:
Brown & Co. issued seven-year bonds two years ago that can be called after two years. The bonds make semiannual coupon payments at a coupon rate of 7.875 percent. Each bond has a market value of $1,053.40, and the call price is $1,078.75.
Required:
If an investor purchased the bonds at par value when they were originally issued and the bonds are called by the firm today, what is the investors realized yield?
Note: Please show how to work it out.